x Abu Dhabi, UAETuesday 25 July 2017

Punishing Iran merely glosses over real issues for US

Calls for more action over Iran's nuclear programme are again growing louder. But sanctions have a long and ineffective history.

Gas is flared off oil wells in Iran. AP Photo
Gas is flared off oil wells in Iran. AP Photo

As the US president noted: "Recent developments in Iran have exacerbated the threat to the national security posed by imports of petroleum … I take steps immediately to eliminate the dependence of the United States on Iran as a source of crude oil."

Later, the president noted: "The government of Iran is actively supporting terrorism as an instrument of state policy … I hereby order that: no goods or services of Iranian origin may be imported into the United States."

The calls for more action over Iran's nuclear programme are again growing louder. But sanctions have a long and ineffective history. The two orders above were made not by Barack Obama, but by Jimmy Carter in 1979 and Ronald Reagan in 1987.

In the latest move, more than 90 US senators signed a letter last Tuesday asking Mr Obama to impose sanctions on the Central Bank of Iran, a move described by the National Iranian American Council as tantamount to a declaration of economic war. This follows Iran's difficulties in receiving payment for its crude oil from India and South Korea, as avenues for financial transactions are gradually closed down.

The aim is not to cut off Iranian oil exports entirely. At about 2.4 million barrels per day, twice Libya's total, that would send oil prices soaring. Instead, sanctions are intended to raise the cost of doing business, by reducing the circle of countries with which Iran can deal, and compelling it to offer discounts.

Of course, these policies cost Iran, and its economy is struggling. But merely punishing the Islamic Republic and its people should not be the goal. Sanctions are a tool intended to change regime behaviour or, in the best case for American policymakers, to catalyse the overthrow of the regime.

Judged against these criteria, sanctions have been a miserable failure. They have only strengthened the hardline elements of the Iranian government, the Sepah (Revolutionary Guards) and their adherents. As in Saddam Hussein's Iraq, regime insiders enrich themselves from bypassing sanctions, and infiltrate every sector of the economy. Indeed, Rostam Ghassemi, the Revolutionary Guards commander, has just become oil minister despite being on a list of sanctioned individuals.

The Revolutionary Guards control ports and airports for bringing in contraband; they replace international oil companies as contractors for energy projects; and they can justify their most egregious interference as necessary for "national security". In 2004, they used this excuse to take over Tehran's new Imam Khomeini airport from a Turkish consortium, to protect lucrative smuggling operations.

At the same time, sanctions have hit the Iranian business community, particularly apparent in Dubai where deals must be done in cash to bypass banking restrictions. Even students studying abroad are unable to receive money from their families.

The Iranian middle class, the engine of democracy and economic growth, is squeezed by sanctions and inflation. This retards the kind of democratic transitions seen in Latin America and East Asia in the 1980s and 1990s.

The Iranian economy is shoddy but rather self-sufficient, dating back to the autarkic policies forced on it during the Iran-Iraq war.

The current leadership looks back on the revolution and "imposed war" as a heroic period; their paranoid, conspiratorial mindset is only empowered and reinforced by sanctions.

The episodic ratcheting-up of sanctions gives Iran time to adjust; and the threat of outside interference is one of the few things that can break the deadlock in its factionalised politics, as with last year's bold decision to abandon lavish subsidies.

Long-running sanctions on Sudan, Myanmar, North Korea and Iraq achieved nothing but further entrenching their autocracies and bringing suffering to ordinary people. In the case of Cuba, the sanctions have been in place for 50 years, while Fidel Castro has outlasted 11 US presidents.

The US complains about China and India's acquisition of overseas energy assets, at the same time as it pushes Iran and other such "pariah" states into their arms. It thus denies itself economic leverage and the oversight of human rights brought by western corporations and the attendant shareholders and activists.

Rather than kow-towing to domestic political interests, if the US really wants to change Iranian behaviour, it should look at the regime's fundamentals.

The biggest blow to Iran would be a fall in oil prices. This might be delivered by the renewed economic crisis. Yet the US has failed to make a contribution such as introducing a petroleum tax, or expanding its own offshore oil production.

Alternatively, a genuine attempt at striking a bargain with Iran would undercut the regime's rhetoric, pose its leadership an unfamiliar strategic puzzle, and open a window for pragmatists such as Ali Larijani, the speaker of parliament and Ahmadinejad opponent. But such an initiative would be torpedoed by hardliners - not just those in Tehran, but also in Washington.

The US is good at dishing out pain to others, but not at making hard choices at home.

Robin Mills is an energy economist based in Dubai, and the author of The Myth of the Oil Crisis and Capturing Carbon